July 10, 2020 - Written by John Cameron
STORY LINK Pound Euro (GBP/EUR) Exchange Rate Flat as Uncertainty Sends Investors Flocking to Safety
Pound Sterling Euro (GBP/EUR) Exchange Rate Muted as Rise in Virus Cases Undermines Swift Economic Recovery
The Pound Sterling Euro (GBP/EUR) exchange rate remained flat on Friday morning. This left the pairing trading at around €1.1154.
Friday morning saw the release of better-than-expected industrial production from the Eurozone.
France’s production rose by 19.6% in May, up from a dire upwardly revised slump of -20.6% in April.
Italy’s industrial production also improved, jumping by 42.1% between April and May. Although annual production was still -20.3% lower compared to May 2019 as the coronavirus pandemic weighed on demand.
Meanwhile, traders began to flock back to safety as the United States saw a new surge in coronavirus infections. The rise in infections undermined the case for a swift turnaround in the global economy, leaving GBP/EUR flat.
The world’s largest economy reported its biggest single-day tally in cases, reporting 60,000 new cases, sending traders flocking to safety. Added to this, many Asian cities that have previously been seen to contain the virus have seen a huge jump in cases.
There has been a sense of uncertainty with companies from airlines to retailers announcing job cuts and furloughs.
According to Minori Uchida, chief currency strategist at MUFG Bank:
‘Although we have seen improvements in economic data, people are beginning to think that is just a natural outcome of economic reopenings. Now they are starting to worry more about increasing infections.’
Sterling (GBP) Struggles as BRC Warn of ‘Disruption’
Brexit remained in focus this morning after Britain’s retail industry warned without a tariff-free trade deal, consumers will face increased prices next year.
So far, the sector has announced thousands of job losses due to the coronavirus pandemic as shoppers have been wary of the high street. The next stage of the Brexit process also poses further challenges for the sector.
With the very real likelihood of UK-EU post-Brexit trade talks not resulting in a deal, the country could leave the bloc at the end of the transition period without a concrete agreement in place.
As four-fifths of UK food imports are from the Eurozone, and imports also playing a huge role in supply chains for fashion, homeware, and many other sectors.
Britain’s government published its new tariff schedule in May which would apply if a trade deal was not reached by the end of 2020.
Under this schedule, around 85% of foods imported from the bloc will face tariffs of more than 5%, with the average tariff on food imported would be over 20%.
The British Retail Consortium argued that the industry would not be able to absorb all these costs, meaning shoppers would face the brunt of the high prices.
According to Andrew Opie, the BRC’s director of food and sustainability:
‘Many UK shoppers experienced disruption in the run up to (coronavirus) lockdown; without a deal, the public may face an even bigger challenge at the end of the transition period.
‘With the clock ticking down to 31st December, the government must put consumers first and agree a deal that avoids tariffs and minimises the impact of non-tariff barriers.’
This weighed on Sterling sentiment, and left the currency flat against the Euro.
Pound Euro Outlook: UK GDP and German Inflation in Focus Next Week
Looking ahead to the start of next week, the Euro (EUR) could edge higher against the Pound (GBP) following the release of Tuesday’s German inflation data.
If June’s final inflation data shows inflation in the bloc’s largest economy has picked up more than expected after the coronavirus crisis, the single currency will edge higher.
Meanwhile, Sterling could suffer losses following a slew of weak data. Traders will be eyeing the latest release of UK growth, manufacturing, construction, and industrial production data.
If May’s GDP data reveals growth has plummeted by more than -20%, and this is accompanied by a slew of downbeat data, it will send the Pound Euro (GBP/EUR) exchange rate lower.
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TAGS: Pound Euro Forecasts